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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 27, 1998
[] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
----------------- -----------------
Commission file number 0-21625
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FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Minnesota 41-1782300
(State or other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
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7279 Flying Cloud Drive, Eden Prairie, MN 55344
(Address of Principal Executive Offices)
(612) 833-9300
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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At November 2, 1998 there were 8,837,590 shares of common stock,
$.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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1
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FAMOUS DAVE'S OF AMERICA, INC.
Form 10-QSB Index
September 27, 1998
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Page Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
September 27, 1998 and December 28, 1997
Condensed Consolidated Statements of Operations - 4
For the thirteen weeks ended September 27, 1998 and September 28, 1997 and
For the thirty-nine weeks ended September 27, 1998 and September 28, 1997
Condensed Consolidated Statements of Cash Flows - 5
For the thirty-nine weeks ended September 27, 1998 and September 28, 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Items 1, 5 and 6. 14
Signatures
15
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2
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 27, DECEMBER 28,
1998 1997
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ASSETS (UNAUDITED)
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CURRENT ASSETS:
Cash and cash equivalents $ 2,573,000 $ 7,984,000
Securities available-for-sale 2,000,000 10,328,000
Inventories 774,000 471,000
Prepaids and other current assets 982,000 1,059,000
------------------ ------------------
Total current assets 6,329,000 19,842,000
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 32,460,000 26,179,000
------------------ ------------------
$ 38,789,000 $ 46,021,000
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,522,000 $ 5,718,000
Current portion of capital lease obligations 382,000 361,000
Other current liabilities 1,442,000 1,444,000
----------------- ----------------
Total current liabilities 4,346,000 7,523,000
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT
PORTION 1,107,000 1,390,000
------------------ ------------------
Total liabilities 5,453,000 8,913,000
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
8,827,590 and 8,667,090 shares issued and outstanding 88,000 87,000
Additional paid-in capital 42,711,000 41,928,000
Accumulated deficit (9,463,000) (4,907,000)
----------------- ----------------
Total shareholders' equity 33,336,000 37,108,000
------------------ ------------------
$ 38,789,000 $ 46,021,000
================== ==================
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See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------------- ------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
--------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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SALES, NET $ 10,916,000 $ 6,102,000 $ 29,575,000 $ 12,140,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Food and beverage costs 3,876,000 2,313,000 10,563,000 4,496,000
Labor and benefits 2,843,000 1,522,000 7,909,000 2,941,000
Restaurant operating expenses 2,071,000 1,069,000 5,760,000 2,219,000
Depreciation and amortization 526,000 207,000 1,519,000 397,000
Pre-opening expenses 173,000 378,000 1,081,000 709,000
General and administrative 1,326,000 1,676,000 4,670,000 4,241,000
Severance and restructuring expense 0 0 1,146,000 0
Provision for loss on restaurants to be disposed 0 0 1,589,000 0
------------- ------------- ------------- -------------
Total costs and expenses 10,815,000 7,165,000 34,237,000 15,003,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 101,000 (1,063,000) (4,662,000) (2,863,000)
Interest and other income, net 33,000 215,000 226,000 474,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 134,000 (848,000) (4,436,000) (2,389,000)
------------- ------------- ------------- -------------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 0 (120,000) 0
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 134,000 $ (848,000) $ (4,556,000) $ (2,389,000)
============= ============= ============= =============
BASIC AND DILUTED NET INCOME (LOSS) PER
COMMON SHARE BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE $ 0.02 $ (0.11) $ (0.50) $ (0.36)
============= ============= ============= =============
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE $ 0.02 $ (0.11) $ (0.52) $ (0.36)
============= ============= ============= =============
SHARES USED IN COMPUTING BASIC AND
DILUTED EARNINGS PER SHARE 8,827,590 7,956,378 8,805,418 6,663,870
============= ============= ============= =============
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See accompanying notes to condensed consolidated financial statements.
4
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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THIRTY-NINE WEEKS ENDED
--------------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
------------------ ------------------
(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (4,556,000) $ (2,389,000)
Adjustments to reconcile net loss to
cash flows from operating activities
Depreciation and amortization 1,791,000 535,000
Reserve for restaurant closings 1,589,000 0
Reserve for other capital items 492,000 0
Changes in working capital items:
Inventories (303,000) (102,000)
Prepaids and other current assets 77,000 (243,000)
Accounts payable (3,196,000) 677,000
Other current liabilities (2,000) 179,000
------------------ ------------------
Cash flows from operating activities (4,108,000) (1,343,000)
------------------ ------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property, equipment
and leasehold improvements (10,152,000) (11,929,000)
Net (increase) decrease in securities available-for-sale 8,328,000 (4,389,000)
------------------ ------------------
Cash flows from investing activities (1,824,000) (16,318,000)
------------------ ------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances (payments) on notes payable 0 (390,000)
Proceeds from capital lease funding 0 1,097,000
Payments on capital lease obligations (262,000) (167,000)
Proceeds from exercise of Class A Warrants 0 22,335,000
Proceeds from exercise of stock options 783,000 41,000
------------------ ------------------
Cash flows from financing activities 521,000 22,916,000
------------------ ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (5,411,000) 5,255,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,984,000 4,907,000
------------------ ------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,573,000 $ 10,162,000
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1998
(UNAUDITED)
(1) GENERAL
The business of Famous Dave's of America, Inc. and subsidiaries (the
"Company") is to develop and operate American roadhouse-style barbecue
restaurants under the name "Famous Dave's." As of September 27, 1998, the
Company operated twenty restaurants and three additional units in development.
The Company also had one franchised unit that began operations in September
1998. As of September 28, 1997, the Company operated eight restaurants.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim condensed financial statements be read in conjunction with the Company's
most recent audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 28,
1997. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods presented
have been made. Operating results for the thirteen and thirty-nine week periods
ended September 27, 1998 are not necessarily indicative of the results that may
be expected for the fiscal year ending January 3, 1999.
Certain amounts in the fiscal 1997 financial statements have been
reclassified to conform to the fiscal 1998 presentation with no impact on
previously reported net loss or shareholders' equity.
(3) INITIAL PUBLIC STOCK OFFERING/EXERCISE OF CLASS A WARRANTS
During October and November 1996, the Company sold, in an initial public
offering, 2,645,000 units consisting of one share of common stock and one
Redeemable Class A Warrant for $6.50 per unit. Net proceeds to the Company
totaled approximately $15.2 million. Each Redeemable Class A Warrant entitled
the holder to purchase one share of common stock for $8.50 per share.
In June 1997, the Company called for redemption its Class A Warrants, giving
warrant holders 30 days notice to exercise their warrants before redemption by
the Company. During July 1997, the warrant call was completed with 2,637,000 of
the outstanding 2,645,000 warrants being exercised. Net proceeds to the Company
from such exercises totaled approximately $22.3 million.
(4) INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per share (EPS) is computed by dividing net income or
(loss) by the weighted average number of common shares outstanding during the
quarter. Diluted EPS is computed by dividing net income or (loss) by the
weighted average common shares outstanding and dilutive common equivalent shares
assumed to be outstanding during each period. Dilutive common equivalent shares
have not been included in the computation of diluted EPS because their inclusion
would be anti-dilutive. Anti-dilutive common equivalent shares issuable based on
future exercise of stock options or warrants could potentially dilute basic EPS
in subsequent years.
(5) INCOME FROM FRANCHISEES
In 1998, the Company entered into a franchise agreement with two former
employees. This agreement provides that in exchange for the payment of certain
fees, the franchisee may open up to three units under the Famous Dave's brand,
along with receiving other benefits from the Company. The revenue generated by
this arrangement is not recognized until the franchised restaurant is open and
the Company has provided all services. At September 27, 1998, there was one unit
open under this franchise agreement.
6
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 27, 1998
(UNAUDITED)
(6) PRE-OPENING COSTS
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-5 ("SOP 98-5") entitled "Reporting on the Costs of Start-Up Activities." This
accounting standard requires entities to expense as incurred all start-up and
pre-opening costs that are not otherwise capitalizable as long-lived assets.
This new accounting standard is effective for fiscal years beginning after
December 15, 1998 with early adoption encouraged. The Company elected to adopt
SOP 98-5 in fiscal 1998. The cumulative effect of this change in accounting
principle was $120,000 and was reflected in the quarter ended March 29, 1998.
Prior to the adoption of SOP 98-5, the Company deferred pre-opening costs until
the month the related unit opened and either charged such costs to expense in
the month the restaurant opened or, in certain cases prior to March 31, 1997,
amortized such costs over a period no longer than 12-months following the
opening of the restaurant.
(7) SEVERANCE AND RESTRUCTURING
In March 1998, the Company recorded a provision totaling $1,146,000 for
severance and restructuring. This amount includes severance costs, real estate
costs and a provision for write-off of a discontinued point-of-sale system.
(8) PROVISION FOR LOSS ON RESTAURANTS TO BE DISPOSED
In March 1998, the Company implemented a plan to close two restaurants. As
part of this plan, the Company has recorded a provision of $1,589,000 to reduce
the carrying value of the assets related to these restaurants to their estimated
net realizable value.
(9) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - The Company leases the real estate for four of
its units from S&D Land Holdings, Inc., a company wholly owned by the Company's
founding Shareholder.
(10)INCOME TAXES
The Company was an S Corporation through March 3, 1996. Accordingly, losses
incurred through March 3, 1996 have been recognized by the Company's founding
shareholder. From March 4, 1996 though December 28, 1997, the Company generated
a net operating loss of approximately $4,907,000 which, if not used, will expire
in 2012. During the thirty-nine weeks ended September 27, 1998, an additional
net operating loss of approximately $4,556,000 was generated which, if not used,
will expire in 2013. Future changes in the ownership of the Company may place
limitations on the use of these net operating loss carry-forwards. The Company
has recorded a full valuation allowance against its deferred tax asset due to
the uncertainty of realizing the related benefit.
(11)NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements. The
Company adopted SFAS 130 in fiscal 1998. Such adoption had no material effect on
the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 for annual 1998 financial reporting
and has not yet evaluated the impact of such adoption on the notes to its annual
consolidated financial statements.
7
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 27, 1998
(UNAUDITED)
(12) COMMITMENTS AND CONTINGENCIES
Construction and development contracts
In conjunction with its expansion activity, the Company enters into fixed
price construction contracts from time to time. At September 27, 1998, the
Company had commitments outstanding under three contracts for construction of
two restaurants in Minnesota that opened in October 1998, and for construction
of a Blues Club in Chicago. As of September 27, 1998, the balances remaining to
be paid under these contracts were approximately $6.0 million.
In addition, the company has entered into a contract with a national real
estate services firm to provide real estate development and construction
management services for the development of a minimum of six restaurants in the
future. The estimated remaining commitment under this contract was $180,000 at
September 27, 1998.
Other
At September 27, 1998, the Company had irrevocable letters of credit
outstanding for a total of $1,628,000, including a letter of credit for
$1,500,000 expiring January 1, 1999 related to the Blues Club under construction
in Chicago. Such letters of credit are fully secured by certificates of deposit.
8
<PAGE> 9
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The business of Famous Dave's of America, Inc. and subsidiaries (the
"Company") is to develop and operate American roadhouse-style barbecue
restaurants under the name "Famous Dave's." As of September 27, 1998, the
Company operated twenty company-owned restaurants: twelve in Minnesota, four in
Wisconsin, three in Iowa and one in Illinois; with three additional units in
development: two in Minnesota and a "Blues Club" (scheduled to open in second
quarter of 1999) in Illinois. In addition, there was one restaurant opened under
a franchise agreement in September 1998.
The Company was formed in March 1994 and opened its first restaurant in the
Linden Hills neighborhood of Minneapolis in June 1995. Through September 27,
1998, the Company had opened a total of twenty-two restaurants, and closed two
during the first six months of 1998. The Company currently operates two "Lodge"
restaurants featuring barbecue entrees, a rustic Northwoods decor and big band
music. In addition, the Company operates sixteen nostalgic roadhouse barbecue
shacks of which nine have been opened as, or converted to, a full service format
that resembles the Lodge concept. The Company also operates a "Blues Club"
(featuring an authentic Chicago Blues Club decor and live music seven nights a
week) and a "Take-Out and Catering" facility. All of the Company's restaurants
feature similar menu items, consistent preparation methods and uniform kitchen
layouts.
The future additional revenues and profits, if any, will depend upon various
factors, including additional market acceptance of the Famous Dave's concept,
the quality of the restaurant operations, the ability to successfully expand
into new markets, the ability of the Company to raise additional financing as
required and general economic conditions. There can be no assurances the Company
will successfully implement its expansion plans, in which case it will continue
to be dependent on the revenues from existing operations. The Company also faces
all of the risks, expenses and difficulties frequently encountered in connection
with the expansion and development of an expanding business. Furthermore, to the
extent that the Company's expansion strategy is successful, it must manage the
transition to multiple-site and higher-volume operations, the control of
overhead expenses and the addition of necessary personnel.
Components of operating expenses include operating payroll and fringe
benefits, occupancy costs, repair and maintenance, and advertising and
promotion. Certain of these costs are variable and will fluctuate as sales
fluctuate. The primary fixed costs are corporate and restaurant management and
occupancy costs. The Company's experience is that when a new restaurant opens,
it incurs higher than normal levels of labor and food costs until operations
stabilize, usually during the first three months of operation. The Company
believes, however, that as restaurant management and staff gain experience,
labor scheduling, food cost management and operating expense control are
improved to levels similar to those at the Company's more established
restaurants.
General and administrative expenses include all corporate and administrative
functions that serve to support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, recruiting, training, rent and office
supplies are major items in this category.
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto and the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the fiscal year ended December 28, 1997.
9
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of net sales were
as follows:
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THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------- -------------------------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1998 1997 1998 1997
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SALES, NET 100.0% 100.0% 100.0% 100.0%
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UNIT-LEVEL COSTS AND EXPENSES:
Food and beverage costs 35.5% 37.9% 35.7% 37.0%
Labor and benefits 26.0% 24.9% 26.7% 24.2%
Operating expenses 19.0% 17.5% 19.5% 18.3%
Depreciation and amortization 4.8% 3.4% 5.1% 3.3%
Pre-opening expenses 1.6% 6.2% 3.7% 5.8%
------------- --------------- ------------- --------------
Total costs and expenses 86.9% 89.9% 90.7% 88.6%
------------- --------------- ------------- --------------
INCOME FROM UNIT-LEVEL OPERATIONS 13.1 10.1 9.3 11.4
------------- --------------- ------------- --------------
General and administrative 12.2% 27.5% 15.8% 34.9%
Severance and restructuring 0.0% 0.0% 3.9% 0.0%
Provision for loss on restaurants to be disposed 0.0% 0.0% 5.4% 0.0%
------------- --------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS 0.9% (17.4%) (15.8%) (23.6)
Cumulative effect of change in accounting principle 0.0% 0.0% (.4%) 0.0%
Interest and other income, net 0.3% 3.5% .8% 3.9%
------------- --------------- ------------- --------------
NET INCOME (LOSS) 1.2% (13.9%) (15.4%) (19.7%)
============= =============== ============= ==============
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SALES, NET
Net sales for the thirteen weeks ended September 27, 1998 were $10,916,000
compared to $6,102,000 for the same period in 1997, a 79% increase. For the
thirty-nine weeks ended September 27, 1998, net sales were $29,575,000 compared
to $12,140,000 for the same period in 1997, a 144% increase. The increase in net
sales is primarily due to the addition of fourteen restaurants opened during the
four quarters subsequent to September 28, 1997, partly offset by the effect of
closing two restaurants in the first six months of 1998. The restaurant openings
were added to the base of eight restaurants open as of September 28, 1997. In
addition, retail and other non-restaurant revenue was $448,000 during the
thirteen weeks and $1,363,000 during the thirty-nine weeks compared to $164,000
and $353,000 for the same periods last year. The Company has three restaurants
in the Minneapolis/St. Paul market which have been open for more than eighteen
months. The opening of eight additional units in the same market area within the
past eighteen months has significantly affected each of these restaurants. The
resulting redistribution of customer demand has resulted in reductions in same
store sales of approximately 18% in the thirteen weeks and 16% in the
thirty-nine weeks as compared to the same periods in 1997. These restaurants
were all originally operating at high volume levels relative to the size of the
units. All new restaurants have been opened in accordance with management's
overall development program for the market. Management anticipates that revenue
levels at these locations will stabilize as development efforts move outside of
the Minneapolis/St. Paul market.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the thirteen weeks ended September 27, 1998 were
$3,876,000 or 35.5% of net sales, compared to $2,313,000 or 37.9% of net sales
for the same period in 1997. For the thirty-nine weeks ended September 27, 1998,
food and beverage costs were $10,563,000 or 35.7% of net sales, compared to
$4,496,000 or 37.0% of net sales for the same period in 1997. The decrease in
food and beverage costs as a percent of net sales was primarily due to improved
purchasing economies, including contract pricing of certain pork items,
partially offset by costs associated with increased sales of lower margin retail
grocery items.
10
<PAGE> 11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LABOR AND BENEFITS
Labor and benefits for the thirteen weeks ended September 27, 1998 were
$2,843,000 or 26.0% of net sales, compared to $1,522,000 or 24.9% of net sales
for the same period in 1997. For the thirty-nine weeks ended September 27, 1998,
labor and benefits were $7,909,000 or 26.7% of net sales compared to $2,941,000
or 24.2% of net sales for the same period in 1997. Labor costs have been higher
in 1998 compared to 1997 due to the introduction of full table service in
several restaurants that were formerly counter service as well as a heightened
emphasis on training and execution in company restaurants.. Full service
restaurants that operate in states without a "tip credit" (such as Minnesota)
experience a higher wage rate for dining room labor. The migration toward full
service dining in most of the Company's restaurants is part of management's
strategy for increasing unit-level sales.
OPERATING EXPENSES
Operating expenses for the thirteen weeks ended September 27, 1998 were
$2,071,000 or 19.0% of net sales, compared to $1,069,000 or 17.5% of net sales
for the same period in 1997. For the thirteen weeks, the increase in operating
expenses as a percent of net sales is primarily attributable to distribution and
promotion expenses related to retail grocery items and to an increase in fixed
expenses such as utilities and rent as a percent of sales due to larger units
and lower average sales per unit for the twenty units open this year compared to
the eight units which were open during the same period last year. For the
thirty-nine week period ended September 27, 1998, operating expenses were
$5,760,000 or 19.5% of net sales compared to $2,219,000 or 18.3% of net sales
for the same period in 1997. For the thirty-nine weeks, the increase in
operating expenses as a percent of net sales is primarily attributable to
distribution and promotion expenses related to retail grocery items and to
increased repair and maintenance costs, including the costs associated with the
implementation of a preventative maintenance program, partly offset by a
decrease in marketing expense as a percent of net sales.
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the thirteen weeks ended
September 27, 1998 was $526,000 or 4.8% of net sales compared to $207,000 or
3.4% of net sales during the same period in 1997. Unit-level depreciation and
amortization for the thirty-nine week period ended September 27, 1998 was
$1,519,000 or 5.1% of net sales compared to $397,000 or 3.3% of net sales for
the same period in 1997. The increase in unit-level depreciation and
amortization results from higher construction costs associated with units opened
in fiscal 1997 and 1998. Units opened in 1996 and prior were conversions of
existing structures that generally had lower levels of investment in relation to
sales and thus lower levels of depreciation expense.
PRE-OPENING EXPENSES
Pre-opening expenses, which beginning in the first quarter of 1998 are charged
to expense as they are incurred, were $173,000 or 1.6% of net sales for the
thirteen weeks ended September 27, 1998 compared to $378,000 or 6.2% of net
sales during the same period in 1997. Pre-opening expenses for the thirty-nine
week period were $1,081,000 or 3.7% of net sales compared to $709,000 or 5.8% of
net sales for the same period in 1997. Prior to March 31, 1997, these expenses
were deferred and charged to expense over no longer than a twelve-month period
following the opening of the unit. These expenses reflect the opening of four
new units in the first quarter of 1998, three new units in the second quarter of
1998, one new unit in the third quarter and the development of two additional
locations during the third quarter of 1998.
11
<PAGE> 12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME FROM UNIT-LEVEL OPERATIONS
Income from unit-level operations totaled $1,427,000 or 13.1% of net sales, for
the thirteen weeks ended September 27, 1998, compared to $613,000, or 10.1% of
net sales, in the corresponding period of 1997. For the thirty-nine week period
ended September 27, 1998, income from unit-level operations was $2,743,000 or
9.3% of net sales compared to $1,378,000 or 11.4% of net sales for the same
period in 1997. Income from unit-level operations represents income from
operations before general and administrative expenses. Although income from
unit-level operations should not be considered an alternative to income/loss
from operations as a measure of the Company's operating performance, such
unit-level measurement is commonly used as an additional measure of operating
performance in the restaurant industry and certain related industries. The
change in income from unit-level operations, both in amount and as a percent of
sales, from 1997 to 1998 is attributable to the increase in net sales from
additional units opened, the impact of pre-opening expenses and other start-up
costs, and the other changes in costs and expenses as discussed above.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the thirteen weeks ended September
27,1998 were $1,326,000 or 12.2% of net sales, compared to $1,676,000 or 27.5%
of net sales for the same period in 1997. For the thirty-nine week period ended
September 27, 1998, general and administrative expenses were $4,670,000 or 15.8%
of net sales compared to $4,241,000 or 34.9% of net sales for the same period in
1997. The reduction in general and administrative expenses as a percent of net
sales reflects increased sales and the Company's adjustment of its corporate
infrastructure to a reduced level which management believes is appropriate to
support its current, more controlled plans for expansion.
SEVERANCE AND RESTRUCTURING
In March 1998, the Company recorded a provision totaling $1,146,000 for
severance and restructuring. This amount includes severance costs, real estate
costs and a provision for write-off of a discontinued point-of-sale system.
PROVISION FOR RESTAURANT CLOSINGS
In March 1998, the Company implemented a plan to close two restaurants. As
part of this plan, the Company recorded a provision of $1,589,000 to lower the
carrying value of the assets of these restaurants to estimated net realizable
value. The Company closed these restaurants during the second quarter of fiscal
1998.
INCOME (LOSS) FROM OPERATIONS
Income from operations totaled $101,000 or .9% of net sales, for the thirteen
weeks ended September 27, 1998 compared to a loss of $1,063,000, or 17.4% of net
sales, in the corresponding period of 1997. The improvement in profitability is
primarily attributable to increased income from unit-level operations from new
units opened and a reduction in the level of general and administrative
expenses. For the thirty-nine weeks ended September 27, 1998 loss from
operations totaled $4,662,000 or 15.8% of net sales compared to $2,863,000 or
23.6% of net sales for the same period in 1997. For the thirty-nine week period
ended September 27, 1998, loss from operations was impacted by a severance and
restructuring charge of $1,146,000 or 3.9% of net sales and a provision for loss
on restaurants to be disposed of $1,589,000 or 5.4% of net sales, offset by
reduced general and administrative expenses. Excluding the impact of these
special one-time charges, loss from operations was $1,927,000 or 6.5% of net
sales for the thirty-nine weeks ended September 27, 1998 compared to $2,863,000
or 23.6% of net sales for the same period last year.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, primarily represents interest income received
from short-term investments offset by interest expense on capital lease
obligations. Interest and other income, net, decreased to $33,000 and $226,000
for the thirteen and thirty-nine week periods ended September 27, 1998 from
$215,000 and $474,000 for the same periods in 1997, respectively. The decrease
in income in 1998 compared to 1997 was primarily due to the reduced level of
short-term investments in 1998.
12
<PAGE> 13
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INCOME (LOSS)/NET INCOME (LOSS) PER COMMON SHARE
Net income for the thirteen weeks ended September 27, 1998 was $134,000, or
$.02 per share on 8,827,590 weighted average shares outstanding, compared to a
net loss of $848,000, or $.11 per share on 7,956,378 weighted average shares
outstanding, during the comparable period in 1997. The improvement from a net
loss and net loss per share to net income and net income per share is
attributable to increased income from unit-level operations from new units
opened and a reduction in general and administrative expenses. For the
thirty-nine week period ended September 27, 1998, the net loss was $4,556,000 or
$.52 per share on 8,805,418 weighted average shares outstanding, compared to
$2,389,000 or $.36 per share on 6,663,870 weighted average shares outstanding
for the same period in 1997. The increase in net loss and net loss per share for
the thirty-nine week period is primarily due to severance and restructuring
charges of $1,146,000 or $.13 per share and a provision for loss on restaurants
to be disposed of $1,589,000 or $.18 per share, partially offset by a
reduction in general and administrative expenses and an increased number of
shares outstanding.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 27, 1998, the Company held cash and cash equivalents of
approximately $2,573,000 compared to $7,984,000 as of December 28, 1997.
As reflected in the accompanying condensed consolidated financial statements,
this decrease in cash and cash equivalents during the thirty-nine weeks
ended September 27, 1998 has been used for the purchase and/or development of
property, equipment and leasehold improvements (approximately $10,152,000) and
operating activities (approximately $4,108,000) partially offset by proceeds of
stock option exercises (approximately $783,000).
Based on its current construction plans, the Company expects that the costs
to complete the development, construction and furnishing of the three
restaurants under development at September 27, 1998 (Woodbury and Bloomington in
Minnesota and the Blues Club in Chicago, Illinois) will total approximately
$6,000,000 between October 1998 and June 1999.
The three restaurants under development at September 27, 1998, are the only
locations for which the Company has commitments. Based on its current estimates,
the Company believes that it can complete the Minnesota restaurants from funds
on hand. It is in the process of negotiating a bank credit facility to provide
the necessary capital to complete the Blues Club project. There can be no
assurance that the Company will be able to obtain the necessary credit facility
to complete the planned restaurant on terms acceptable or favorable to the
Company. Additional restaurant development during 1999 and beyond will be
limited to projects for which financing is or becomes available in the future.
There is no assurance that financing on terms acceptable to the Company will be
available for such additional development.
SEASONALITY
The Company's units typically generate higher revenues during the second and
third quarters (which are summer months for the Company's locations) than in the
first and fourth quarters (which are winter months) as a result of its
concentration of locations in Minnesota and Wisconsin market areas.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking. A number of important factors
could, individually or in the aggregate, cause actual results to differ
materially from those expressed or implied in any forward-looking statements.
Such factors include, but are not limited to, the following: competition in the
casual dining restaurant market; additional market acceptance of the Company's
concept; availability and terms of additional financing: the Company's ability
to open additional restaurants in a timely manner; consumer spending trends and
habits; weather conditions in the regions in which the Company develops and
operates restaurants; and laws and regulations affecting labor and employee
benefit costs. For further information regarding these and other factors, see
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
28, 1997.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAMOUS DAVE'S OF AMERICA, INC.
/s/ Douglas S. Lanham
---------------------
Douglas S. Lanham
President, Chief Executive Officer
and Chief Operating Officer
/s/ Mark Meier
--------------
Mark Meier
Controller
(Principal Accounting Officer)
Date: November _, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMOUS
DAVE'S OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> SEP-27-1998
<CASH> 2,573,000
<SECURITIES> 2,000,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 774,000
<CURRENT-ASSETS> 6,329,000
<PP&E> 35,313,353
<DEPRECIATION> 2,853,353
<TOTAL-ASSETS> 38,789,000
<CURRENT-LIABILITIES> 4,346,000
<BONDS> 1,107,000
0
0
<COMMON> 42,799,000
<OTHER-SE> (9,463,000)
<TOTAL-LIABILITY-AND-EQUITY> 38,789,000
<SALES> 29,575,000
<TOTAL-REVENUES> 29,575,000
<CGS> 10,563,000
<TOTAL-COSTS> 34,237,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (226,000)
<INCOME-PRETAX> (4,436,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,436,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (120,000)
<NET-INCOME> (4,556,000)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
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